S.D.’S INVESTING ANGELS

Local startups benefiting from well-off individuals taking a chance on them

George Eiskamp didn’t have high expectations when he made a funding pitch last summer to Tech Coast Angels in San Diego.

His local startup company, GroundMetrics, makes electromagnetic sensing technology to pinpoint underground oil and mineral deposits. While San Diego is known for its expertise in life sciences and wireless technology, it is not a hotbed for the oil and mining industries.

“I thought it would be a dry run for my pitch before going to Houston” to seek funding, said Eiskamp. “But I was surprised by the thoroughness of the due diligence, the speed in which they moved and the general enthusiasm for GroundMetrics.”

In the end, Eiskamp didn’t fly to Texas. GroundMetrics corralled $1.2 million from local angel investors in September. The company is now perfecting its technology and demonstrating it to potential customers.

Raising money is a major hurdle for startups. Institutional venture capital funds historically haven’t placed a large percentage of their capital in very young firms. And since the 2008 financial crisis, many venture funds have channeled more of their dollars into more mature firms than they’ve backed previously, keeping the companies alive until the economy improves.

The result is that angel investors — well-off individuals looking to put money into startups — have been funding more firms.

“If you look at the last 10 years of activity from the University of New Hampshire data on angel investment, the number of investments has gone from 38,000 to 66,000,” John Backus, managing partner with New Atlantic Ventures, said in a conference call. Meanwhile, venture capital deals in early-stage companies have increased from about 1,100 to 1,600 in the same time period, he said.

“I think in 2013 we’re probably going to continue to see a frenetic pace at the seed level, primarily led by sub-VC investors — angels, angel groups, micro-seed funds,” said Backus.

Angel investors typically put $300,000 to $1.5 million in young companies — amounts too small for most venture capital funds. Angels look for companies that won’t need a lot of money to get a product to market. They also seek out firms that are open to mentorship along with the cash.

Angel investing nationwide grew 12.1 percent to $22.5 billion in 2011, according to the Center for Venture Research at the University of New Hampshire. Through the first six months of 2012 — the latest figures available — angel investment gained about 3.5 percent over prior year levels.

“That’s about where I’d expect it to come in for the full year,” said Jeffrey Sohl, director of the Center for Venture Research. “The activity level is up for angels, that’s for sure.”

Contrast that with venture capital funding, which dropped 10 percent to $26.5 billion last year, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association.

Tech Coast Angels, one of the nation’s largest angel groups, invested $11.4 million in young firms throughout Southern California last year. The group has five chapters — San Diego, Los Angeles, Orange County, Inland Empire and Central Coast — and 300 members.